Tuesday, 1 December 2015

Kanban Insurance

The Internet of Things (IoT) has evolved and matured to a point where pilots and programs are already in place around the world for every major line of business: Auto, P&C, Life and Health.

The most mature market unarguably is auto insurance in part because sensors have been in place for many years and the auto industry is driving the use of telematics for its own sake, not just insurance.

But it is not just telematics; vehicles are becoming smarter. Collision avoidance and secure driving aids are more common now, and not only in luxury cars. At the end of the road we already know that vehicles will evolve to the extreme of being smart enough to become autonomous.

Smarter vehicles make smarter (and safer) drivers reducing significantly the driving risk. Autonomous vehicles take away the driving risk almost entirely (we still have the risk of the system being hacked or that there is a flaw in the programming) .

All this is happening while telematics driven auto UBI hasn’t yet become the norm in the insurance industry; and already has an expiration date. So should we continue to invest in auto UBI programs to cover driving risk knowing it will inevitably be disrupted? Is there another approach to consider?

Some of you may be familiar with Kanban; a method (and term) used in manufacturing, first introduced by Toyota, for a scheduling system for lean and just-in-time (JIT) production. Is a system to control the logistical chain from a production point of view, and is an inventory control system.

I believe insurance is changing in a way it will be lean and just in time also; think of “Kanban Insurance”, driven by IoT and digitally delivered and serviced.

Kanban insurance is not limited to auto insurance but can be applied across all LOBs, moving away from the traditional concept of insurance pre-defined products where the customer chooses from a limited set of options (and within an existing LOB), to flexible insurance solutions which are a bundle of coverages, regardless of LOB.

Kanban insurance is digitally sold and serviced, tailored to the specific needs of each customer with the solution being created automatically on the fly. Kanban insurance allows customers to easily opt in/out and connect devices and sensors to activate the insurance and monitor in real time the changing aspects of the risk.

Imagine a solution that is created on the fly based on your specific needs and will follow your daily journey. A solution that for example could cover your commute, whether you use public transportation, Uber/Lyft, an autonomous vehicle you own or share, or that you decided to drive the old fashioned way (manually). This solution will activate a set of coverages for your home which is in autonomous mode as you left the house (as nobody is at home and sensors are active) which are different coverages to the ones you have when people is there; while your life insurance coverage and insured sum (and premium) automatically adjusts depending on what driving mode you are using (or if you are in a train, cruise or air trip).

Kanban insurance makes more sense to me than just UBI programs. Insurers that agree with my view should focus on the implications and requirements to be able to support this approach. These will include core systems functionality, digital solutions, data integration, analytics, machine intelligence, 3rd party partnerships, and deciding on infrastructure and data ownership.